FIVE FORCES Meaning and
Definition
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The term "Five Forces" refers to a strategic business framework developed by Michael E. Porter, a renowned Harvard Business School professor, in his seminal book "Competitive Strategy." It represents a comprehensive analysis of the external competitive environment that affects a particular industry or market.
The Five Forces framework consists of five key forces that shape a company's competitive strategy and determine its potential profitability. The first force is the threat of new entrants, which assesses the barriers to entry that new competitors might encounter and the likelihood of their entry into the industry. The second force is the bargaining power of suppliers, which examines the supplier's ability to influence prices or terms of supply. The third force is the bargaining power of buyers, which evaluates the power that customers have over prices and conditions. The fourth force is the threat of substitute products or services, which assesses the extent to which alternative products or services can satisfy customers' needs. Finally, the fifth force is the intensity of competitive rivalry, which examines the level of competition among existing firms within the industry.
By analyzing these five forces, businesses can better understand the competitive dynamics of their industry, identify potential threats or opportunities, and develop strategies to gain a sustainable competitive advantage. This framework is widely used by managers, consultants, and analysts to assess industry competitiveness and make informed strategic decisions.
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Etymology of FIVE FORCES
The term "Five Forces" does not have an etymology in the traditional sense as it is not a standalone word with a specific origin. However, the term "Five Forces" refers to a framework developed by Michael Porter, a renowned economist and professor at Harvard Business School, in his book "Competitive Strategy: Techniques for Analyzing Industries and Competitors" published in 1980.
Porter's Five Forces framework is a strategic tool used to analyze the competitive forces within an industry. These forces include:
1. Bargaining power of suppliers
2. Bargaining power of buyers
3. Threat of new entrants
4. Threat of substitute products or services
5. Intensity of competitive rivalry
The term "Five Forces" simply represents the five different forces that affect the competitive dynamics of an industry.
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